When it’s time to shop for a new home many buyers look at the total price of the place they plan to buy, then enter that into an online calculator to figure out the monthly payment. While it is a good idea to calculate payments in advance and make sure you can afford a home before you buy, there is often more in your total monthly mortgage payment than just the principal balance of the house. Here are five potential things you should be sure to calculate in your payments to make sure you’re getting a loan you can afford.
1: Principal & Interest
Unless you’re planning to pay cash, your monthly mortgage will include payments toward the principal balance (the amount you pay for the house) as well as interest. In the early years of the loan, the percentage you pay towards interest will be much higher, but will decrease as you get more of the principal balance paid down. The total amount of principal and interest depend on:
- The price of your home
- The interest rate you can qualify for
- The total number of years in which you plan to repay the loan
2: Private Mortgage Insurance (PMI)
If you do not have 20% of the total purchase price of your home in cash that you can put as a down payment, you will likely have to pay mortgage insurance. Any amount you can put as a down payment is good because it reduces your total principal loan balance, but in order to protect themselves against potential losses, lenders require mortgage insurance as a safeguard until you have at least 20% equity in your home. The total amount of PMI varies, so it’s important to discuss it with your Utah mortgage loan company.
3: Property Taxes
Most homeowners pay a portion of annual property taxes each month, and the mortgage company holds it in an account until the taxes are due. This is convenient for homeowners because you can pay the taxes in small amounts rather than getting one large bill every year, and the taxes will be automatically paid by your lender so you don’t have to remember or risk the consequences of forgetting to pay. A local assessor or auditor’s office can help you estimate how much it will be for budgeting purposes.
All homeowners are required to carry homeowners insurance, which is based on the total value of your home and how much coverage you want to get. If you already have insurance for a vehicle or other purpose, call your agent and find out what the monthly rates would be. In many cases you can get discounts for getting several different types of insurance through the same broker. Be sure to also ask if flood insurance is required, since that is separate from traditional homeowners insurance policies.
5: HOA Fees
Many homes today are built in neighborhoods called “homeowners associations” (HOAs). The planned communities will often charge an HOA fee that covers things like parks and recreational areas, snow removal, and landscaping for common areas. They can range from a small amount to several hundred dollars a month, so be sure to find out what they are before you buy and budget for it.
To learn more about mortgage loans and how to get qualified, or get help calculating just how much home you can afford, call a mortgage loan company today.